Back in March, George Osborne delivered his last Budget as part of the Coalition Government. With the economy improving, unemployment dropping to record levels and living standards on the rise, it felt upbeat and positive. But now that the dust has settled, what does it mean for HR? Will you face an HR budget challenge?

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HR budget challenge

Increased Employment – Increase Productivity?

ONS figures show that unemployment has fallen to 5.3% – a massive decrease from 8.4% in 2011. However critics constantly accredit the drop to insecure zero-hour contracts, low-paid jobs or people setting up their own businesses.

While high employment is positive, the fact that the economy is still not growing as fast as predicted suggests there is a gap between employment levels and productivity.

HR has a responsibility to help businesses boost employee skills and performance. A highly skilled workforce will encourage growth and productivity and help the UK to compete more effectively at a global level – the Budget seemed to lack commitment and incentives to achieving this, which could mean an HR budget challenge for businesses.

Personal Tax Allowance

The Personal tax allowance has increased to £10,600 – effectively a tax cut for 27 million and meaning 4 million of the lowest paid will pay no income tax at all.

National Minimum Wage Increase

From October 2015 the adult rate of the National Minimum Wage will rise by 20p to £6.70 and the apprentice rate will increase by an unprecedented 57p to £3.30. Although a step in the right direction, the Government continues to be pressured to do more considering the ‘Living Wage’ is currently £7.85 across the UK and £9.15 inside London.

Employer NI Contributions

Employer NI contributions for those aged under 21 have now been abolished, making it cheaper for businesses to employ young people. However this will be restricted to earnings up to the Upper Earnings Limit (now £42,385). It is expected to affect 1.5 million workers and is planned to be extended to young apprentices in 2016.

While a positive incentive, it remains to be seen whether this will conflict with age discrimination legislation. Candidates over 21 may feel disadvantaged at a job interview, or if an employee is dismissed at age 21 they may claim it is because of their age. HR professionals should be cautious of the potential implications.

Pensions

Following pension reforms which allow those aged over 55 to access their pension fund, it was confirmed that pensioners with an existing annuity will be given the option to cash it in – effectively giving them the same freedoms as everyone else.

On top of this, the pension Lifetime Allowance will be cut from £1.25m to £1m. While this will still sound like a huge amount for most employees, even modest savers could find themselves unwittingly hitting this target sooner than they realise and it may be wise seeking financial advice.

Overall, the changes that have come out of the Budget will largely affect Payroll and Finance departments – your Payroll system provider should have provided software updates to handle these changes, along with the usual new tax year threshold adjustments. However, HR professionals should be aware of the changes and be prepared to deal with any questions that employees may have so you can overcome your HR budget challenge.

If you would like further advice or need any HR representation, contact us today for an informal chat.

Categories: Blog

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